President Joe Biden has offered up a new plan to give some students two years of college free of charge. But he still hasn’t hasn’t made a decision — not publicly, at least — on whether to toss out student loan debt for millions of borrowers.
He was mum on the subject during his major speech to Congress Wednesday night. Still, that doesn’t mean student loan debt forgiveness is dead.
“It could happen this year but it’s not going to be tomorrow,” says Mark Kantrowitz, a leading national student loans expert.
Advocates say widespread loan forgiveness would give consumers some much-needed financial breathing room to save for their futures, buy a car or jump on the property ladder by purchasing their first home at today’s bargain mortgage rates.
Biden pushes free tuition, others push for debt relief
While Biden made no mention of student debt forgiveness in his congressional address, he did present several proposals that could lessen the amount of college debt taken out by students in the future.
The $1.8 trillion “American Families Plan” he unveiled includes two years of free community college and increases the maximum federal financial aid award by around $1,400, to provide additional assistance to low-income students.
It also increases funding to historically Black colleges and universities, and other institutions serving Hispanic, Asian and native populations.
Meanwhile, Democrats and advocacy groups continue to push hard for Biden to use his executive authority to cancel roughly $1 trillion in outstanding federal student loans, up to $50,000 per person.
That would completely relieve the burden for 36 million people — or 84% of all borrowers, according to U.S. Department of Education data supplied to Massachusetts Democratic Sen. Elizabeth Warren.
Billions in help is already available
Some argue that the White House has already offered abundant student debt relief.
The administration already has forgiven $2.3 billion in student loans, giving many borrowers more room in their budgets to save or invest.
And, the COVID relief bill Biden signed last month — the one providing $1,400 stimulus checks — included a provision making canceled student loans tax-free until 2026. Normally, forgiven debts are taxed as income.
The administration also has extended a nationwide pause on student loan payments and interest through September. That benefit, Kantrowitz notes, effectively amounts to debt forgiveness.
“The cost of it is a little bit less than $5 billion a month in forgone interest,” he says, citing an Education Department report. “It’s a very substantial amount of money.”
Biden awaits a decision on canceling debt
Biden has said he’d be willing to cancel $10,000 in student debt per person but that forgiving five times as much through an executive order is more complicated. The president has asked his education secretary, Miguel Cardona, to look into whether that’s something that could be done without approval from Congress.
Kantrowitz, the author of the book How to Appeal for More Financial Aid, says the answer is likely to be a resounding no.
“If by some magical twist they were to decide, yes, he can, it would be met with litigation, especially at $50,000 because that’s a trillion dollars,” he says.
This week, White House Press Secretary Jen Psaki told reporters the Education Department’s review is ongoing.
Instead of waiting around, you might want to consider refinancing your student loans at lower interest. Rates on refi loans from private lenders are near all-time lows.
A refinance could cut your monthly payment substantially. But note that if you refinance a federal student loan into a private one, you’d be disqualified from any federal forgiveness that may come along.
More options if you need a break ASAP
Consider other ways to give yourself some relief if you’re facing overwhelming college debt.
If you own a home you should look into refinancing your mortgage, instead of refinancing your student loans. Some 13 million homeowners still have an opportunity to save an average $283 a month by taking out a new loan, according to mortgage data and technology firm Black Knight.
Lastly, explore ways to grow your income. If you’ve wanted to wade into the high-flying stock market but haven’t had much extra cash to play with, use a popular app that lets you earn returns in the market simply by investing your “spare change”.